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Bank income smoothing, institutions and corruption

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  • Ozili, Peterson K.

Abstract

This study investigates bank income smoothing, focusing on the effect of corruption on income smoothing by African banks. I find that banks use loan loss provisions to smooth positive (non-negative) earnings particularly in the post-2008 crisis period and this behaviour is reduced by strong investor protection. Also, I find that banks in highly corrupt environments smooth their positive (non-negative) earnings as opposed to smoothing the entire profit distribution. Finally, cross-country variation in bank income smoothing is observed. The findings have implications.

Suggested Citation

  • Ozili, Peterson K., 2019. "Bank income smoothing, institutions and corruption," Research in International Business and Finance, Elsevier, vol. 49(C), pages 82-99.
    • Handle: RePEc:eee:riibaf:v:49:y:2019:i:c:p:82-99
    DOI: 10.1016/j.ribaf.2019.02.009
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    2. Mujeeb Saif Mohsen Al-Absy & Ku Nor Izah Ku Ismail & Sitraselvi Chandren, 2019. "Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 265-282, October.
    3. Danisman, Gamze Ozturk & Demir, Ender & Ozili, Peterson, 2021. "Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 923-935.
    4. Rashedul Hasan & Muhammad Ashfaq, 2021. "Corruption and its diverse effect on credit risk: global evidence," Future Business Journal, Springer, vol. 7(1), pages 1-13, December.
    5. Peterson K. Ozili & Thankom G. Arun, 2023. "What drives bank income smoothing? Evidence from Africa," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(3), pages 274-295, September.
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    7. Dang, Van Dan & Nguyen, Hoang Chung, 2022. "Bank profitability under uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 119-134.
    8. Ozili, Peterson K, 2021. "Financial reporting under economic policy uncertainty," MPRA Paper 105089, University Library of Munich, Germany.

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    More about this item

    Keywords

    Loan loss provisions; Earnings management; Investor protection; Corruption; Income smoothing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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